Xcel Energy customers in Minnesota will pay 9 percent more for electricity starting next month, after the state Public Utilities Commission on Thursday approved a $250 million interim rate increase.

Starting Jan. 1, a typical residential customer will pay about $8 more per month as the charge is applied to all power users -- from major industries to retail shop owners.

The rate adjustment is the utility's largest in at least two decades and follows four other increases since 2006.

Xcel, the state's largest power company with 1.2 million electric customers in the state, already is facing pushback from regulators and customers. It filed the rate request last month.

"It makes very little sense to further burden ratepayers in challenged economic circumstances," said Commissioner Dennis O'Brien, a Republican who advocated a smaller interim rate hike at Thursday's meeting.

"This is going to have a significant impact on people's ability to pay," said Pam Marshall, executive director of the Energy CENTS Coalition, a Minnesota nonprofit that helps Xcel manage an assistance program for low-income customers. "I think Xcel recognizes that."

The interim rate was approved on a 4-1 vote and will stay in effect while regulators review Xcel's full request for $285 million, or 10.7 percent. That will take much of next year and require a trial-like process in which Xcel must defend its request before an administrative judge.

The reasons why

Xcel says the increase is needed to recoup investments in its two nuclear power plants, counter a drop in electric sales and pay for other power plant and transmission upgrades as well as higher property taxes.

Betsy Wergin, a commissioner who voted for the interim rate hike, conceded that the amount is "a big number and hard for people to swallow."

"There will be a high level of scrutiny on all parts of the rate case," she said.

It is the fifth electric rate increase for Xcel's Minnesota customers in seven years. The cumulative effect of the earlier increases on a typical household has been $10.40 per month, the utility said, which doesn't include January's increase.

Some customers say it's too much.

"We're not poor, but a lot of other people are struggling," said Dan Haessig, a stay-at-home dad whose house is on St. Paul's East Side. "I don't know how they are going to pay their bills."

Bob Clyne of Plymouth, who is retired, also said he can afford the extra charges but objects to Xcel's pursuit of a return on equity of 10 percent, and believes the utility's investors should shoulder the effects of slack demand for power.

"I have worked in corporate America -- you have good years and you have bad years," he said.

Prepare for more, Xcel says

Xcel probably won't get all it has asked for in the rate case, and may have to give money back. In recent Xcel rate cases, regulators have approved 37 percent to 78 percent of what the company originally sought.

Christopher Clark, Xcel's regional vice president for rates and regulatory affairs, said the request reflects the company's steady upgrades to its system -- parts of which are 50 to 70 years old. It's an effort that runs about $1 billion a year.

"I am confident as we get into this case people will understand we are investing in our plants, poles and wires for the long term," Clark said. "That will help customers understand that we are doing what we need to do to maintain the system and keep it reliable."

Indeed, Xcel customers should prepare for continued rate increases. Clark said the company intends to file for another rate case next year. Unlike this one, it would aim to spread out rate increases over two or more years, he said. Among other things, the utility still needs to recover its share of investment in the CapX2020 transmission line upgrades across Minnesota, he said.

Marshall, of the nonprofit assistance group, said she believes Xcel should reconsider one part of its proposed increase -- a $2 increase in the basic charge for every residence, which would rise to $10 monthly. She also said the utility's assistance for low-income customers should be increased.

If the final rate increase is less than the interim rates, Xcel must give refunds with interest. If Xcel gets the full increase requested, customers won't be billed the difference for the months before final approval.

Before 2006, Xcel customers in Minnesota went 13 years without an electric rate hike. One reason is that as part of a merger in 2000, Xcel agreed to a five-year freeze and a slight drop in rates.